Last week, energy stocks eked out small gains amid concerns
over supply disruptions from a tropical storm, even as the
Washington drama over budget negotiations and debt-ceiling talks
continued to hog the limelight from everything else.
The U.S. was forced to shut down certain government operations
last week - the first time in seventeen years - as politically
divided lawmakers failed to strike a short-term funding measure
ahead of the Sep 30 deadline when the existing authorization ran
out. Consequently, around 800,000 federal workers were laid off
and scores of nonessential services halted. This has kept crude
prices under pressure, as U.S. is the world's biggest oil
consumer and a continued impasse in government activities will
lead to a reduction in the fuel's demand.
Sentiments were further dampened by a bearish Energy
Information Administration (EIA) report that showed another big
increase in inventories.
(Read our full coverage on the EIA release:
Oil Scales $104, Even as Supplies Jump
However, energy stocks staged a turnaround on Friday, ending
the week on a slightly positive note. By close of trade on Oct 4,
West Texas Intermediate (WTI) oil was marginally in the black and
settled at $103.84 per barrel, gaining 1.0% for the week, as a
storm warning in the Gulf of Mexico prompted producers to shut in
almost 70% of the region's oil output.
Almost all major integrated players except Eni SpA traded in the
red, with the top loser being
), which shed 3.7% over the week despite a firm reason to justify
the pullback. On the contrary, the company signed a long-term
agreement to sell 900,000 tons of liquefied natural gas per annum
from its Wheatstone venture in Australia to Japanese utility
Tohoku Electric Power Co.
Europe's largest oil company
Royal Dutch Shell plc
) was also in the news last week, as it started production from
the second development phase of the Parque das Conchas (BC-10)
project off Brazil's south-east coast, while planning to sell its
stake in the Eagle Ford Shale in Texas.
While all crude-focused stocks stand to benefit from high
commodity prices, companies in the exploration and production
(E&P) sector are the best placed, as they are able to extract
more value for their products. Notwithstanding the overall flat
industry trend, the SIG Oil Exploration & Production Index
traded up 2.5% during the week.
Two of the best performers last week were domestic explorers
Harvest Natural Resources Inc.
Sanchez Energy Corp.
), shooting ahead of their peers with additions of 15% and 8% to
their respective stock prices. While Harvest Natural Resources
moved higher after announcing that it is in negotiations to sell
its stake in Gabon for $137 million, Sanchez Energy's gain was
tied to the completion of its purchase of acreage in South Texas'
On the other end of the spectrum,
Forest Oil Corp.
) topped the losers' chart last week, dropping 7.6%. Shares of
the Denver-based energy explorer plunged following the decision
to sell its Texas Panhandle assets for $1 billion. Apart from the
price tag, which does not appear to reflect any premium,
questions have been raised about the firm's future growth. Post
sale, the oil and gas producer will be left with just about
28,000 net acres in the Eagle Ford and East Texas regions, that
too dominated by natural gas whose economics is
The oil services group - represented by the Philadelphia Oil
Services Sector Index - was up 2.4% through the week. With oil
prices staying north of $100 a barrel and rising capital
spending, the industry is positioned for better times ahead.
It was a relatively dull few days for the equipment suppliers
following the eventful previous week where two companies -
National Oilwell Varco Inc. and Noble Corp. - announced
spin-offs. The only newsmaker happened to be onshore contract
Nabors Industries Ltd.
), which entered into an agreement with Alaska-based Bristol Bay
Native Corp. to sell its 100% ownership interest in subsidiary
Peak Oilfield Service Co. for an undisclosed price. The
transaction, representing Nabors' objective to focus primarily on
core operations, was apparently welcomed by investors with shares
up 6.3% through the week.
Refining & Marketing:
This has been one sector that has underperformed the rest of the
energy industry. With refiners being buyers of oil - whose price
has seen a steep climb recently - their profitability are being
squeezed due to a rise in the input cost and lower crack spreads.
What's more, the headwinds are expected to continue during the
next six months, translating into a difficult earnings outlook
through the first quarter of 2014.
However, with crude not moving much last week, major
downstream stocks were mixed. A notable gainer was
), which advanced 1.1% over the week. The oil refiner on
Wednesday said its board approved a quarterly dividend of 39
cents per share, up 7.75 cents, or 25%, from the prior
Natural gas spot prices tumbled to below $3.50 per million Btu
(MMBtu) on Thursday, Oct 3, following the U.S. Energy
Department's weekly inventory release that showed a
larger-than-expected rise in the commodity's supplies. On a
further bearish note, the storage build was also higher than the
benchmark 5-year average gain for the week.
Mild weather forecasts - which could slow demand even more -
further worsened the situation. However, natural gas ended
slightly higher Friday (at $3.51 per MMBtu), as investors closely
tracked the development of a tropical storm activity in the Gulf
of Mexico that could disrupt production from the energy-rich
The EIA's weekly inventory release showed that natural gas
stockpiles held in underground storage in the lower 48 states
rose by 101 billion cubic feet (Bcf) for the week ended Sep 27,
above the guided range (of 93-97 Bcf gain). The increase - the
twenty-fifth injection of 2013 - also exceeded both last year's
build of 77 Bcf and the 5-year (2008-2012) average addition of 82
Bcf for the reported week.
(Read our full coverage on the EIA release:
Massive Injection Pressures Natural Gas
Last Week's Performance
6 month performance
This Week's Outlook:
With the shutdown robbing us of economic data, this week
investors will be closely tracking Wednesday's minutes of Federal
Reserve's last meeting, when they surprised everyone with a 'no
Taper' verdict. The minutes are expected to provide a good sense
of how close the call actually was, which will help set
expectations about the central bank's coming meeting.
Traders have voiced concerns that Fed's shift away from the
bond buying policy may lead to dollar-denominated oil prices to
increase in local-currency terms in emerging markets, thus
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